On 6 April 2019, minimum contributions under the automatic enrolment requirements are increasing from 5% to 8%. Auto-enrolment is not just about paying the right level of contributions, employers need to communicate any changes to employees and ensure the pension scheme is still fit for purpose. Failure to do so could result in fines and negative publicity.

By Ken Anderson, Head of DC Solutions at XPS Pensions Group

The increase in contribution rates may mean that the cost of employing staff will rise. Businesses may wish to meet the increased costs by providing salary growth in the form of pension contributions or spread current pension spending more thinly. Conversely, employers may choose to offer all employees access to good quality pension provision.

Whichever approach employers take, employers should check whether savings in national insurance contributions (NICs) can be made on both their and their employees’ contributions. Understanding the implications of different approaches from a cost and risk perspective is important to ensure businesses meet their corporate goals.

By law, employers are currently required to pay minimum contributions of at least 2% of qualifying earnings into employees’ workplace pension scheme. Following the rise of minimum contribution levels on 6 April 2019, employers will have to pay a minimum of 3% towards their employees’ pension. Employees will need to pay any shortfall, with the total minimum contribution reaching 8%.

Depending on what employers have told their employees so far, employers may have to consult with them about the increase in minimum contribution rates.

If employers offer salary sacrifice or flexible benefit arrangements, or have adopted a ‘contractual enrolment’ approach, they may need to consult with employees to vary the contractual agreement they have with their employees.